What Not To Say To An Investor

I get to listen to the stories of lots of entrepreneurs. I’ve probably spent at least 30 minutes with more than 1,500 of them by this time. Many of them say some pretty naive things. In fairness, most of them have never stepped out onto the ledge of entrepreneurship before, so a little naiveté is to be expected. Despite this, it is hard to not sigh when some classic uninformed comment comes out of an entrepreneurs mouth. In order to make a good early impression, please consider the following advice carefully and take it to heart when approaching someone from the investment community.

Do not say “I need you to sign an NDA”

Probably 10% of the first time callers or emailers to my office lead off with a statement like “I’ve been working on something really incredible for three years and I need investment to change the world. I’d like to tell you about it, but I need you to sign a confidentiality agreement first.” In general, it is good to be careful with the amount of information that you share with strangers. However, we do not sign NDAs at the very beginning of our relationship with you. In fact, it will be a fairly infrequent event for us to do so at any point. We see ideas all day long every day. Investors will dig into the validity of your technology at some point, depending on the nature of the technology, but for the first few conversations, we want to understand the bigger business context of where your concept fits in the world. Who will use it? How will you sell it to them? Who are you, and what experience do you have with the customer set? How much will it cost to sell the first one? Etc., etc. You need to be able to describe a LOT about the technology and potential business without me signing a document.

There are many critical elements to starting a business of which “having the idea” is only one. I can’t steal relationships that you have with people important to your business. I can’t purloin your professional experiences. I can’t abscond with your know-how and education about your target industry. Your idea is important, but not all-important. It is ok to say something like “If you’re interested in getting to know the secret sauce, we can move into confidential due diligence later, but here is the business plan for what we think we have.” But first, be sure you have more to your story than just a technology concept.

Do Not Say: “We have no competition for this product”

Probably two-thirds of the founders I work with have uttered this to me, and it has been untrue every time. And when you say it, it is obvious to me that you have not done enough to understand the environment in which you’ll be competing. Don’t ever think of your “competition” as a product/service that your product will sit next to on a shelf. Rather, think of the “competitive landscape” in which your business will operate. When you think of your competition more in terms of “what other courses of action might my ultimate customers have,” you would never say “my customers have no choice but to buy from me.” I don’t think you’d ever suggest this to a potential investor, would you?

I’m sure that the particular configuration of your product or service is new, but in the end, your specific product or service configuration is irrelevant. The problem that it solves is what matters and you have to view your product or service in terms of the problem it solves as opposed to its intrinsic values and characteristics.

Do Not Say: “We’re a virtual team”

I completely understand the idea of how “Skype, dropbox, and IM make us productive even though we’re 3,000 miles apart.” However, in my opinion this is an organizational model that is only relevant to an investor when used in the past tense. As in “we hacked our prototype in a virtual way.” A serious business has a founding team and that team is in a room together often. You can build a functional prototype, a beta site, or a proof-of-concept working from two or more garages or kitchen tables. But you cannot build a serious, scalable business from them. You can have high-performing, valuable team members and outsourced service providers at globally diverse locations, but the big strategic decisions that need to be made on an ongoing daily, and sometimes hourly basis must be made in a synchronous manner, on the same whiteboard in the same room kind of way. Read the histories of the successful companies. A lot of virtual hacking probably occurred, but the BUSINESS…where the real value was created for founders and investors…emerged from a single room where the team was together for a majority of the working week.

There are other things we investors don’t like to hear. Personally, I don’t like to hear “We’re going to replace the need for landfills in five years” or other audacious mankind-saving prophecies. We’re trying to build a business together, not a new society. None of us like to hear “Our projections are conservative” or “We only need 1% of the market to be a $100 million business” or “Our competitors are too big to react quickly enough to us.” I know you mean well, and I greatly respect your hopes and dreams, even though I may cross my arms and shake my head. Just be careful what you say!